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Central bank forecasting: an international comparison

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  • John C. Robertson

Abstract

Forecasts, whether explicit or implicit, are at the heart of policy making. In considering forecasting for monetary policy, this article contrasts the forecasting processes at three central banks-the Reserve Bank of New Zealand, the Bank of England, and the U.S. Federal Reserve. ; In the United States policymakers consider confidential staff forecasts in policy discussions, but these do not necessarily represent the consensus forecasts of the policy committee. At the Bank of England, official published forecasts are the product of bank staff and the policy committee working closely together, and the forecasts therefore come much closer to representing the central view of the policymakers. A similar, but less formal, interaction takes place at the Reserve Bank of New Zealand, which on a regular basis publishes forecasts based on staff models under the name of the bank's governor. ; The discussion pays particular attention to the differences and similarities among the core models used by staff at these institutions. The analysis suggests that there is considerable similarity across central banks in the basic mechanics in producing forecasts. However, the author observes differences in the emphasis given to model-based forecasts relative to judgmental forecasts and those based on expert opinion. Banks with mandated inflation objectives have tended to favor model-based approaches as part of a strategy of ensuring that policy decisions are consistent with their inflation objectives and are as transparent to the public as possible.

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Bibliographic Info

Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2000)
Issue (Month): Q2 ()
Pages: 21-32

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Handle: RePEc:fip:fedaer:y:2000:i:q2:p:21-32:n:v.85no.2

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Keywords: Banks and banking; Central ; Forecasting;

References

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  1. McKibbin, W.J. & Wilcoxen, P.J., 1995. "The Theoretical and Empirical Structure of the G-Cubed Model," Papers 118, Brookings Institution - Working Papers.
  2. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta.
  3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  4. Yuong Ha, 2000. "Uncertainty about the length of the monetary policy transmission lag: implications for monetary policy," Reserve Bank of New Zealand Discussion Paper Series DP2000/01, Reserve Bank of New Zealand.
  5. David Hargreaves, 1999. "SDS-FPS: a small demand-side version of the Forecasting and Policy System core model," Reserve Bank of New Zealand Discussion Paper Series G99/10, Reserve Bank of New Zealand.
  6. Reifschneider, David L. & Stockton, David J. & Wilcox, David W., 1997. "Econometric models and the monetary policy process," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 1-37, December.
  7. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England.
  8. Brayton, Flint & Levin, Andrew & Lyon, Ralph & Williams, John C., 1997. "The evolution of macro models at the Federal Reserve Board," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 43-81, December.
  9. Bennett T. McCallum, 1999. "Recent developments in the analysis of monetary policy rules," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-12.
  10. F. Brayton & P. Tinsley, 1996. "A guide to FRB/US: a macroeconomic model of the United States," Finance and Economics Discussion Series 96-42, Board of Governors of the Federal Reserve System (U.S.).
  11. Mike Frith & Aaron Drew, 1998. "Forecasting at the Reserve Bank of New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, December.
  12. Richard Black & David Rose, 1997. "Canadian Policy Analysis Model: CPAM," Working Papers 97-16, Bank of Canada.
  13. Dawes, Robyn M., 1999. "A message from psychologists to economists: mere predictability doesn't matter like it should (without a good story appended to it)," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 29-40, May.
  14. Aaron Drew & Ben Hunt, 1998. "The Forecasting and Policy System: stochastic simulations of the core model," Reserve Bank of New Zealand Discussion Paper Series G98/6, Reserve Bank of New Zealand.
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Cited by:
  1. Sandra Eickmeier & Tim Ng, 2009. "Forecasting national activity using lots of international predictors: an application to New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2009/04, Reserve Bank of New Zealand.
  2. Katerina Smidkova, 2003. "Methods Available to Monetary Policy Makers to Deal with Uncertainty," Macroeconomics 0310002, EconWPA.

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